Misunderstanding The Problems Of The Patent System

from the it's-got-problems,-but-not-these dept

Earlier this year, Alex Iskold wrote up a piece on why the economics of "free" was somehow bad. That didn't make much sense and we tried to explain why. Now he's written another article trying to explain why the patent system is in crisis, and it seems equally as confused. We absolutely agree that the patent system has some serious, serious problems -- but it's not for the reasons Iskold describes. First, he claims that the patent system used to work -- when historical evidence suggests otherwise. Almost every look at the patent system over history has found little to no evidence that it increased innovation. From Fritz Machlup to Eric Schiff to the more recent research of Scherer and Weisburst and others have consistently found little evidence that patents increase innovation.

Iskold, oddly, suggests that the reason why we're seeing open source rise up and an open sharing of ideas proliferate is somehow because of the patent system's failures (despite the fact that both became more prevalent and common long before software was considered patentable), and warns that this is somehow dangerous, because: "What happens when a big company copies a startup? What happens when dozens of startups copy each other?" Of course, that's what most people consider competition, and we tend to think it's a good thing in a capitalist society. It's what actually drives innovation, as pretty much all of economic history has shown. If someone copies you, you continue to innovate and beat them to the market. If you really understand your market better, then you can out-innovate them. And, despite continuous worries about "big companies" copying startups, history shows that it's not quite so easy. If the startup is successful, it's not so easy to just copy, because the startup has built up a reputation, which isn't so easy to copy. Witness how Netflix outran Blockbuster, despite Blockbuster copying Netflix. Witness how Google outran both Yahoo and Microsoft. Witness how Microsoft outran IBM.

It's not so easy to just "copy." And just copying isn't enough to actually gain marketshare.

From here, Iskold's column skids off the rails completely. It claims that the real problem of the patent system is the time between filing the patent and when the patent is granted, because that allows plenty of other companies to copy your patent and beat you to the market. That's so wrong it's difficult to know where to start. First, patents aren't published until 18 months after being filed. So, no matter what, you have an 18 month headstart. And if we're talking about software firms, that seems like a pretty damn big headstart. Furthermore, there's very little evidence of startups or even larger companies in the software space scouring patent applications to "steal ideas" from others. No, they tend to focus on what the market is actually asking for. And, in fact, there's ample evidence that many software firms actively forbid employees from looking at patents, as doing so may open them up to treble damages for "willful infringement."

Iskold seems to think that this patent scanning is what leads to tons of "me too" startups -- but the truth usually has absolutely nothing to do with the patent system. It's because multiple people recognize the same or similar markets, and over time are likely to attack it in similar ways. Again, that's competition -- and it's a good thing.

Oddly, towards the end, Iskold finally admits what he calls "the biggest irony in this patent debacle": it actually benefits consumers. That's not "irony." That's correct. Competition benefits the customer. That's how it's supposed to work. So what's the problem?

Well, according to Iskold, this isn't sustainable: "To not have patents at all means that at the end of the day big companies will always absorb all the best innovation for free." But, again, as we already pointed out, that's simply not true. Sometimes big companies win, but quite often, they do not. Big companies are slow and lumbering. Small companies are faster and more nimble and can often out innovate the slow companies with legacy issues. Competition is a good thing, Alex. Don't fear it.

My favorite part of Triumph of the Nerds was when Steve Wozniak was forced to take his initial Apple prototype to his employer HP because that company had first dibs on anything he created during his employment.

Of course HP, being a huge lumbering behemoth, could not recognize the value of the personal computer. So Wozniak and Jobs were free to start up Apple in their garage and the rest is history. Start up: 1. Big company: 0.

And of course the entire paradigm of person computers might not exist without all the benefits of Xerox's Alto computer. It had a GUI, networking, etc. But, once again, when the higher-ups at Xerox had a chance to view the Alto, they saw absolutely no value. Xerox lost the personal computer industry to Apple and Microsoft, both very small fish at the time. Once again: Start ups: 2. Big company: 0.

Heck, and what about Google?! By all rights internet searching should have been taking over buy a big company like Bell with its Yellow Pages. Bell had been making vast amounts of information usable for decades. But yet small start ups such as Yahoo and Google won the search battle. And the Yellow Pages were never even a contender. Once again, Start ups: 2. Big company: zip!

Longview

Naturally I want to support anything that gives the little guy an advantage, but what about the long view?

This is only sort of a half thought, but take a cool idea like VOIP. Nobody wanted it until some little guy started to run with it and showed it was a moneymaker. So of course that guy is going under, and in the mean time the big players, cable companies and AT&T, add his "idea" to their others and pretty soon will be making money hand over fist with it.

Or maybe IBM. They take every idea they can and make their own version of it. You can say they're hurting, but they're still here. How many small PC makers or IT service companies that they've lifted good ideas from aren't?

Hmm, how about banks? We had a brief period of innovation and I think it's still going on, but truly, who's coming out on top? Chase, Bank of America, etc. -- Megalithic corporations that have been around and will be around after we're nothing but dirt.

I'm not sure shortening the patent review time is the answer, but when it comes down to it, maybe faster and more nimble don't mean as much as big as hell and able to take a hit. If that is the case, and we truly value competition, then maybe we should be looking for ways to even the playing field a little more.

Re: Longview

This is only sort of a half thought, but take a cool idea like VOIP. Nobody wanted it until some little guy started to run with it and showed it was a moneymaker. So of course that guy is going under, and in the mean time the big players, cable companies and AT&T, add his "idea" to their others and pretty soon will be making money hand over fist with it.

Actually, if you watched it was those big guys abusing the patent system to take a ton of money out of Vonage.

And, it wasn't the big guys copying Vonage that caused Vonage to run into trouble, it was Vonage's own business model.

Or maybe IBM. They take every idea they can and make their own version of it.

And how did that work? OS/2 sure was a success, right?

Plenty of small companies that IBM "copied" from have done just fine on their own. It's difficult to point to a company that got "crushed" by IBM recently.

But, really, the point has nothing to do with big or small. It should be about who drives innovation forward. That's not a question of big or small.

RE; Re: Longview

In for a penny, in for a pound I guess. Let me see if I can defend my idea.

I agree with you, it was the big guys abusing our patent system that seriously trounced Vonage. Vonage was doing a good job of blowing things on its own too. I also would not say that idea copying has anything to do with Vonage's dire straits. Except...If you sue the name brand leader into oblivion, well, that clears the way for you doesn't it? If the first-to-market ain't around any more, name recognition, brand loyalty, convenience and the other traditional marketing factors become so much more important.

I also agree that OS/2 was not a success, but if Microsoft had a sunk a big chunk of cash and equity, and whatever else into a product that failed to capture the market for 26 years, would they be here today? I don't believe so. That's the advantage of big. Which is part of my point.

Sure some of the companies IBM has copied are doing great, for now. How about 20-30 years from now? IBM got started more than a 100 years ago. They can take the long view. They can wait to see what is a fad and what is going to last and go with that. Not exclusively of course, large companies do innovate, but they persist sometimes on sheer momentum it seems.

My point in all this other mess of points is that perhaps being small is not an advantage. Additionally, perhaps being innovative is not an advantage, or at least not a lasting advantage. I guess I'm suggesting that to truly succeed, to be something other than Pets.com with staying power, maybe you need to be big.

But, since we can't all be big, and since we can't all have been around forever, then maybe our system needs something to give everyone a fighting chance, no matter their size or date of origin.

What is certain is that the current patent system is not that something.

Re: RE; Re: Longview

My point in all this other mess of points is that perhaps being small is not an advantage. Additionally, perhaps being innovative is not an advantage, or at least not a lasting advantage. I guess I'm suggesting that to truly succeed, to be something other than Pets.com with staying power, maybe you need to be big.

Heh. Well, I'm not sure how Pets.com was innovative. :)

Being innovative is very much an advantage, and the good innovative company goes from a small one to a large one. Google was a small upstart and it beat everyone. Not because of patents. But because it outran everyone.

Microsoft was a small upstart and it became a big company by being innovative.

Etc. etc. etc. No one says that small companies stay small. But a smart, innovative company can go from a small company to a big company before the legacy companies even recognize it.

mike,
here's a clue for you... even if a small company can continually out innovate a large company, the large company can always sell for less and therfore teh small company cannot compete. think of he old standard oil. the only solution is to patent your innovations so the big company cannot keep doing the end around.

mike,
here's a clue for you... even if a small company can continually out innovate a large company, the large company can always sell for less and therefore the small company cannot compete. think of the old standard oil. the only solution is to patent your innovations so the big company cannot keep doing the end around.

Re: Re: Re: Re: Re: Re: Re: RE; Re: Longview

Patenting

It has been hard for me to put this into words, but I think I have it now. First, I am a patent attorney (possibly the only one in the US specializing in small entity (VERY different from large entity) patenting. As a result, my discussion may be more about what SHOULD be than what IS.
There is a tendency in the US (perhaps because of the rush we are in) to "peg" in one direction or the other; we are either completely "sold" on something or completely against it.
This is unfortunate. Whereas I agree with Michael in the main, that the IP system in this country is in dire need of reform, which is the REASON I never do large entity IP anymore (I was very successful at it at one time), the idea that it is NEVER useful is an example of the extremism I discussed above.
From experience, when applied IN THE WAY THE FOUNDING FATHERS INTENDED, the system is very conducive to innovation, and to say it has "never worked" is to admit extreme ignorance of the history of the system.
Properly applied (true, at the present it seldom is) it does all that the founding fathers wanted.

Re: Patenting

From experience, when applied IN THE WAY THE FOUNDING FATHERS INTENDED, the system is very conducive to innovation, and to say it has "never worked" is to admit extreme ignorance of the history of the system.

Would you care to cite evidence to disprove the evidence I cited then?